INTERPRETING RISK RATIOS. Refer to the profitability ratios of Coca- Cola in Problem 4.25 in Chapter 4. Exhibit 5.17 presents risk ratios for Coca-Cola for 2006- 2008. As we did within the chapter for PepsiCo, we utilize Coca-Cola's footnote disclosures to extract the amount of trade accounts payable included within the line item accounts payable and accrued expenses.
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Exhibit 5.17
Risk Ratios for Coca Cola
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2008
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2007
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2006
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Revenues to Cash Ratio
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6.9
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8.4
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6.5
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Days Revenues in Cash
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53
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44
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56
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Current Ratio
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0.9
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0.9
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0.9
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Quick Ratio
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0.6
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0.6
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0.6
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Operating Cash Flow to Average Current
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Liabilities Ratio
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0.578
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0.647
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0.636
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Days Accounts Receivable
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37
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37
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37
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Days Inventory
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71
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68
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68
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Days Accounts Payable
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44
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38
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40
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Net Days Working Capital
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64
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67
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65
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Liabilities to Assets Ratio
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0.495
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0.497
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0.435
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Liabilities to Shareholders' Equity Ratio
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0.979
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0.990
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0.771
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Long-Term Debt to Long-Term Capital Ratio
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0.120
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0.131
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0.072
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Long-Term Debt to Shareholders'
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Equity Ratio
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0.136
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0.151
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0.078
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Operating Cash Flow to Average Total
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Liabilities Ratio
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0.364
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0.414
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0.456
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Interest Coverage Ratio
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17.0
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17.3
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29.9
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Required:
a. Assess the changes in the short-term liquidity risk of Coca-Cola between 2006 and 2008.
b. Assess the changes in the long-term solvency risk of Coca-Cola between 2006 and 2008.
c. Compare the short-term liquidity ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more short-term liquidity risk? Explain.
d. Compare the long-term solvency ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more long-term solvency risk? Explain.